Date: 20080421
Docket: A-605-06
Citation: 2008 FCA 142
CORAM: DÉCARY
J.A.
NADON
J.A.
TRUDEL
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
GENERAL MOTORS OF CANADA
LIMITED
Respondent
REASONS FOR JUDGMENT
NADON J.A.
[1]
This is an
appeal from a judgment of Mr. Justice Miller of the Tax Court of Canada dated
December 1, 2006, 2006 TCC 638, which allowed the respondent’s appeal from the
Minister’s reassessment of its 1996 taxation year. More particularly, the Tax
Court concluded that the respondent was entitled to deduct in its 1996 taxation
year the unexpended $7,741,002 portion of a fund established by agreement
between the respondent, General Motors of Canada Ltd. (GM) and the National
Automobile Aerospace and Agricultural Implement Workers Union of Canada (the
CAW), referred to as the Special Canadian Contingency Fund (the SCCF).
[2]
At issue
in this appeal is whether the unexpended $7,741,002 of the SCCF constitutes a
contingent liability, as the appellant submits, or whether it constitutes, as
the respondent submits, an absolute liability on the part of GM to pay arising
in 1996. This issue is the same issue which our Court addressed in General
Motors of Canada v. Canada, 2004 FCA 370 (General Motors of Canada Ltd.
(FCA)), albeit with respect to GM’s 1995 taxation year. I will return to that
decision later in these Reasons.
THE FACTS
[3]
GM entered
into collective agreements with the CAW. In 1996, the taxation year at issue,
two agreements were in force. Appendix “H” thereof, entitled “Memorandum of
Understanding covering Special Canadian Contingency Fund” (the MOU), was
attached to each of the agreements and provided for amounts to be accrued to
the SCCF in respect of overtime worked during the year by GM’s CAW-represented
employees.
[4]
More
particularly, by reason of the MOU, the 1993 Collective Agreement which applied
prior to October 22, 1996 required that GM accrue to the SCCF $2.00 per
overtime hour worked by all covered employees in excess of five percent of
straight time hours worked calculated on a twelve month average. That amount
was increased to $2.35 in the1996 Collective Agreement which applied to the
remainder of the 1996 taxation year. The total amount accrued at the end of the
1996 taxation year was $15,156,711, of which $7,741,002 accrued to the SCCF
during the 1996 taxation year.
[5]
As
provided in the MOU, the amount accrued in the SCCF was to be spent for the
benefit of CAW members to support child care programs, the Legal Services Plan
and to finance the Canadian Supplemental Unemployment Benefit Plan, if needed,
or to fund other initiatives to be agreed upon by GM and the CAW. At the end of
the collective agreement period, the use of the unexpended portion of the fund
was to be renegotiated. The funds accrued in the SCCF were not put in a bank
account separate from GM’s working capital nor were they contributed to a
trustee. During the 1996 taxation year, a total of $6,419,193 was paid out of
the accrued balance in the SCCF. This amount was deducted in the 1996 taxation
year and there is no dispute in regard thereto.
[6]
In
computing its income on its financial statements, GM deducted the unexpended
amount of $7,741,002 and included this amount as part of its labour costs for
the purpose of reporting to its shareholder, General Motor Corporation. GM also
deducted the amount for tax purposes. However, the appellant was of the view
that the unpaid amount was a contingent liability pursuant to 18(1)(e) of the Income
Tax Act, R.S.C. 1985 (5th Supp.), c.1 (the Act) and could not be deducted
in the 1996 taxation year.
[7]
As I
indicated earlier, the issue of whether the unexpended amount accrued in the SCCF
constitutes an absolute liability to pay arising in 1996 and thus deductible,
was raised in respect of GM’s 1995 taxation year. GM’s appeal to the Tax Court
of Canada (General Motors of Canada Ltd. v. Canada, 2003 TCC 815) (General
Motors of Canada Ltd. (TCC)) and to the Federal Court of Appeal (General
Motors of Canada Ltd. (FCA)) was dismissed, and leave to appeal to the
Supreme Court of Canada (General Motors of Canada Ltd. v. Canada, [2005]
S.C.C.A. No. 3 (QL)) was denied. Both the Tax Court of Canada and this Court were
of the view that the language used in the MOU created a liability that was
contingent on the occurrence of certain events. Accordingly, the amount claimed
was a contingent liability and not deductible pursuant to paragraph 18(1)(e) of
the Act.
[8]
After these
decisions were rendered, section 2 of the MOU was amended on March 24, 2005, to
have retroactive effect. GM submits that the new version of the MOU clearly establishes
an absolute liability on its part, whereas the appellant argues that notwithstanding
the amendment, the amount accrued in the SCCF remains a contingent liability. I
should point out that there is no issue before us regarding the rectification itself.
THE TAX COURT DECISION
[9]
Proceeding
on an Agreed Statement of Facts, the parties requested that the Tax Court determine
the following question: is the amount of $7,741,002 accrued but not paid out of
the SCCF a contingent liability despite the rectification of paragraph 2 of
Appendix H of the collective agreements?
[10]
Miller J.
reformulated the question before him because he was of the opinion that it
should not be limited to the section 2 rectification and the question of
contingent liability. In his view, the issue was whether the MOU created, as
overtime hours were worked, an obligation to pay.
[11]
The Judge determined
that there were two differences between the case before him and the one before
the Tax Court and this Court with respect to the 1995 taxation year: the
wording of section 2 of the MOU and the evidence concerning the intention of both
GM and the CAW.
[12]
With
respect to the words used in section 2 of the MOU, Miller J. was of the opinion
that they did not establish an absolute obligation to pay or expend amounts
from the SCCF. The only absolute obligation resulting from the wording of
section 2 was, in his view, to calculate or add the amount accrued to the SCCF
during the 1996 taxation year
[13]
Because of
his view that the words found in section 2 of the MOU were ambiguous as to
whether the agreement to expend arose at the time when overtime hours were
worked or when the specific object of the expenditure was identified, Miller J.
turned to the extrinsic evidence adduced by GM with respect to the intent of both
GM and the CAW. On the basis of the affidavit evidence of James Cameron, GM’s
Director of Labour Relations and that of Sym Gill, Director of the CAW’s
Pensions and Benefits Department, he held that GM and the CAW intended to
create, as overtime hours were worked, an absolute liability to expend amounts
from the SCCF. This led the learned Judge to conclude that the nature of the
obligation which the parties intended to be absolute in section 2 was an
obligation to expend amounts from the SCCF.
[14]
Miller J.
then turned to sections 3 to 5 of the MOU to determine whether those sections
negated the absolute liability created in section 2. In his view, sections 3 to
5 did not negate the absolute obligation to pay. He held that those sections
went to the manner in which the liability was to be discharged, in other words,
when and how would the funds be spent? In his view, the obligation to spend was
not contingent on events which might or might not occur. Indeed, if amounts were
not paid during the term of a collective agreement, they would be used later
for the benefit of CAW members and for CAW purposes.
[15]
Finally,
Miller J. addressed two concerns raised by Malone J.A. in General Motors of
Canada Ltd. v. Canada (FCA). First, Miller J. opined that the fact that the
funds were not contributed to a trustee or set aside from working capital was
not determinative of the issue. Second, he held that there was an identifiable
creditor, the CAW, which could have brought a claim against GM in the event
that it went bankrupt at the end of 1996.
[16]
Although reluctant
to reach a conclusion contrary to that reached by this Court in General
Motors of Canada Limited (FCA) with respect to the 1995 taxation year,
Miller J. held that the respondent was entitled to deduct the unexpended portion
of the SCCF.
THE SUBMISSIONS OF THE PARTIES
A. Appellant’s submissions
[17]
The appellant
submits that there was no basis for Miller J. to depart from the conclusion
previously reached by this Court and the Tax Court for GM’s 1995 taxation year
that the unexpended amount of the SCCF was a contingent liability. The wording
of section 2 of the MOU did not alter the obligations that were determined by
the two Courts. According to the appellant, the respondent did not have an
obligation to pay unless one of the following conditions was satisfied:
a) the reaching of certain financial thresholds;
b) the receipt of a request for funding of a program; or,
c) the reaching of an agreement by GM and the CAW to use the
funds otherwise.
[18]
As a
result, the Appellant submits that the unexpended amount of the SCCF was a
contingent liability.
[19]
The appellant
submits that Miller J. erred by considering the stated intention of the parties
to determine the nature of the obligation between GM and the CAW. Indeed,
extrinsic evidence can be used to determine the intention of the parties only
when the terms of the written agreement are ambiguous. The appellant submits
that in this case, there was no ambiguity in the MOU concerning the unexpended
amount of the SCCF. The appellant underlines that Miller J. was able to
interpret section 2 of the MOU and conclude that this section failed to
establish that GM was liable to do anything more than calculate an amount.
According to the appellant, Miller J. should have stopped the analysis once he
arrived at that conclusion.
B. Respondents’ submissions
[20]
The respondent
begins its submissions by pointing out that the appellant does not argue that
Miller J. misinterpreted the relevant test for determining whether a liability
is contingent, adding that it is clear that the learned Judge did not
misinterpret that test. In the respondent’s view, the Appellant simply does not
agree with Miller J.’s conclusion that the facts at issue were not the same as
those underlying the 1995 taxation year. The respondent submits that the
rectification of section 2 of the MOU constitutes “new facts” and that the
previous litigation with respect to the 1995 taxation year must be viewed with
caution. The respondent points out that the previous version of section 2 of
the MOU did not specifically provide that GM’s obligation to add to the SCCF
accrued as overtime hours were worked, that all amounts accrued had to be used exclusively
for CAW purposes and did not clarify that the role of sections 3 to 5 was to determine
the particular purpose for which the funds were to be used. Therefore,
according to the respondent, GM’s obligation was not conditional upon the occurrence
of the events mentioned in sections 3 to 5 of the MOU. If the amount was not
paid during the term of a collective agreement, it was to be used for the
benefit of CAW members and for CAW purposes, and it was not be possible for GM
to retain the amount.
[21]
The respondent
also submits that since Miller J. found that section 2 of the MOU was
ambiguous, he properly considered the evidence before him concerning the
parties’ intent, adding that Miller J. did not conclude that section 2 did not
establish an absolute liability to pay, but rather that the words of section 2
“alone” did not establish such an obligation.
[22]
The
respondent further submits that the fact that GM can deduct an amount for tax
purposes, even if the amount is not yet paid at the end of the year, is
prescribed by the cardinal principle of our tax system that businesses should
employ the accrual method in calculating their income. In the respondent’s
submission, the deduction of the accruals to the SCCF in the year the overtime
work is performed is also consistent with GM’s financial statements and
represents the most accurate picture of GM’s profit.
[23]
Finally,
the respondent submits that directing funds to a qualified trustee or otherwise
segregating funds is not a necessary precondition to a deduction; rather, it is
only one of the ways it can be deducted.
THE ISSUE
[24]
The main
issue in this appeal is whether Miller J. erred in concluding that the
unexpended portion of the SCCF was not a contingent liability in 1996 within
the meaning of paragraph 18(1)(e) of the Act. Underlying that issue is whether
the Judge erred in considering evidence extrinsic to the collective agreement
because of his view that the words of section 2 of the MOU were ambiguous.
ANALYSIS
[25]
There is
no issue in this case as to what constitutes a contingent liability pursuant to
paragraph 18(1)(e) of the Act. The test to determine whether a legal obligation
is contingent was enunciated as follows by Sharlow J.A. in Wawang Forest
Products Ltd. v. Her Majesty the Queen, [2001] 2 C.T.C. 233 (FCA):
11 The
generally accepted test for determining whether a liability is contingent comes
from Winter v. Inland Revenue Commissioners (1961), [1963] A.C. 235
(U.K. H.L.), in which Lord Guest said this (at page 262):
I should
define a contingency as an event which may or may not occur and a contingent
liability as a liability which depends for its existence upon an event which
may or may not happen.
[…]
16
Returning
to the Winter test, the correct question to ask, in determining whether
a legal obligation is contingent at a particular point in time, is whether the
legal obligation has come into existence at that time, or whether no obligation
will come into existence until the occurrence of an event that may not occur.
[26]
Thus, the
question before Miller J. was whether GM had, pursuant to the MOU, an
obligation to pay as overtime hours were worked or whether GM’s obligation to
pay only arose upon the occurrence of certain events, such as the reaching of
certain financial thresholds, the receipt of a request for funding of a program
or the reaching of an agreement by GM and the CAW to use the funds otherwise. Hence,
as noted by the appellant, this tax dispute is on timing.
[27]
As I have
already indicated, Miller J. found section 2 of the MOU to be ambiguous and, as
a result, turned to the extrinsic evidence which led him to conclude that the
rectification of section 2 modified GM’s liability to pay from a contingent to an
absolute liability.
[28]
I begin
with the Judge’s determination that the words of section 2 were ambiguous and
therefore allowed him to consider the extrinsic evidence. In General Motors
of Canada Ltd. v. Canada (FCA), at paragraph 14 of his
Reasons, Malone J.A. indicated that the determination of whether the unexpended
portion of the SCCF was a contingent or absolute liability to pay was a mixed
question of fact of law that was reviewable on a standard of palpable and
overriding error. However, with respect to the issue of whether the Judge was
correct in considering extrinsic evidence, I am of the view that the proper
standard is that of correctness.
[29]
In MacDougall
v. MacDougall (2005), 262 (4th) 120, the appeal before the
Ontario Court of Appeal pertained to the proper interpretation of a spousal
support section of a marriage contract, i.e. the interpretation of a variation
provision in a domestic contract. Thus, the Court of Appeal had to determine on
what standard it would review the Trial Judge’s interpretation. The appellant
contended that the question before the Court raised a question of law and was
thus reviewable on a standard of correctness because it related to the legal
effect to be given to the words of the contract. The respondent argued that the
question before the Court was a mixed question of fact and law which should be
reviewed on a standard of palpable and overriding error.
[30]
After
reviewing a number of Ontario Court decisions in the light of Housen v.
Nikolaisen, [2002] 2 S.C.R. 235, Lang J.A. wrote at paragraphs 30 to 33 of
her Reasons for the Court:
30 To
begin with, the trial judge must apply the proper principles of contract
interpretation, including consideration of the clause in the context of the
entirety of the contract. A failure to follow the proper principles, including
a failure to apply a fundamental principle of interpretation, would be an error
of law attracting review on the standard of correctness.
31 To the
extent that this task of interpretation includes consideration of extrinsic
evidence, or a determination of the factual matrix, the trial judge is involved
in making a finding of fact, or drawing inferences from a finding of fact. Further, the
trial judge's "interpretation of the evidence as a whole" is one
involving factual or inferential determinations. See Amertek Inc. v. Canadian
Commercial Corp. (2005), 200 O.A.C. 38 at para. 68. Such questions of fact are
entitled to deference and are not to be overturned except in the case of
palpable or overriding error, or its "functional equivalents":
"clearly wrong", "unreasonable", and "not reasonably
supported by the evidence". See H.L. v. Canada, [2005] 1
S.C.R. 401 at para. 110.
32 In
interpreting the contract, the trial judge also applies the legal principles to
the language of the contract in the context of the relevant facts and
inferences. This requires the application of law to fact. This has been said to
be a question of mixed fact and law. See Algoma Steel Inc. v. Union Gas Ltd.
(2003), 63 O.R. (3d) 78 at paras. 19-21 (C.A.); Amertek,
supra, at para. 68.
33 Accordingly,
in reviewing the trial judge's interpretation of a contract, the appellate
court must first classify the question as one of fact, law, or mixed fact and
law. If the question is an inextricable intertwining of both fact and law, the
question can be said to be one of mixed fact and law. […]
[Emphasis
added]
[31]
I agree
entirely with Lang J.A.’s comments that if the Judge misdirects himself with
respect to a principle of interpretation or fails to properly apply such a
principle, such error will constitute an error of law reviewable on a standard
of correctness. In order to determine whether Miller J. erred in principle, a
review of the authorities pertaining to the admissibility of extrinsic evidence
in the context of the interpretation of a contractual document will be useful.
[32]
In Eli
Lilly and Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129 and in United
Brotherhood of Carpenters and Joiners of America, Local 579, v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, the
Supreme Court of Canada addressed that very issue. At
issue in Eli Lilly, above, was whether a supply agreement entered into
by Apotex Inc. and Novopharm Ltd. constituted a sublicence so as to justify the
termination by Eli Lilly of Novopharm’s compulsory licence for the drug nizatidine.
Writing for the Court, Iacobucci J. enunciated the following at paragraphs 54 to
59:
54 The
trial judge appeared to take Consolidated-Bathurst to stand for the
proposition that the ultimate goal of contractual interpretation should be to
ascertain the true intent of the parties at the time of entry into the
contract, and that, in undertaking this inquiry, it is open to the trier of
fact to admit extrinsic evidence as to the subjective intentions of the parties
at that time. In my view, this approach is not quite accurate. The
contractual intent of the parties is to be determined by reference to the words
they used in drafting the document, possibly read in light of the surrounding
circumstances which were prevalent at the time. Evidence of one party's
subjective intention has no independent place in this determination.
55 Indeed,
it is unnecessary to consider any extrinsic evidence at all when the document
is clear and unambiguous on its face. In the words of Lord Atkinson in Lampson
v. City of Quebec (1920), 54 D.L.R. 344 (P.C.), at p. 350:
. . the
intention by which the deed is to be construed
is that of
the parties as revealed by the language they
have chosen
to use in the deed itself .... [I]f the
meaning of
the deed, reading its words in their ordinary
sense, be
plain and unambiguous it is not permissible for
the parties
to it, while it stands unreformed, to come
into a Court
of justice and say: "Our intention was
wholly
different from that which the language of our deed
expresses. .
. ."
56 When
there is no ambiguity in the wording of the document, the notion in Consolidated-Bathurst
that the interpretation which produces a "fair result" or a
"sensible commercial result" should be adopted is not determinative.
Admittedly, it would be absurd to adopt an interpretation which is clearly
inconsistent with the commercial interests of the parties, if the goal is to
ascertain their true contractual intent. However, to interpret a plainly
worded document in accordance with the true contractual intent of the parties
is not difficult, if it is presumed that the parties intended the legal
consequences of their words. This is consistent with the following dictum
of this Court, in Joy Oil Co. v. The King, [1951] S.C.R. 624, at p. 641:
. . . in
construing a written document, the question is not as to the meaning of the
words alone, nor the meaning of the writer alone, but the meaning of the words
as used by the writer.
57 In
my view, there was no ambiguity to the contract entered into between Apotex and
Novopharm. No attempt was made to disguise the true purpose of the
arrangement, or the circumstances surrounding its drafting. Clearly, the
agreement was meant to minimize the deleterious effects of the amendments to
the Patent Act, which were expected to and did eventually place severe
restrictions on the former scheme of compulsory licensing, by maximizing the
access of each party to as wide a variety of patented medicines as possible.
This was to be accomplished by obliging each party to obtain such material for
the other in the event that one party possessed a licence which the other
lacked and could no longer readily obtain. All of this is evident on a plain
reading of the recitals to the supply agreement. Leaving aside the question of
circumventing the legislation, which has no bearing on the interpretation of
the contract, the parties' intentions are clear on the face of the
agreement. Accordingly, it cannot properly be said, in my view, that the supply
agreement contains any ambiguity that cannot be resolved by reference to its
text. No further interpretive aids are necessary.
58 More
specifically, there is no need to resort to any of the evidence tendered by
either Apotex or Novopharm as to the subjective intentions of their principals
at the time of drafting. Consequently, I find this evidence to be
inadmissible by virtue of the parol evidence rule: see Indian Molybdenum
Ltd. v. The King, [1951] 3 D.L.R. 497 (S.C.C.), at pp. 502-3.
59 Moreover,
even if such evidence were required, that is not the character of the evidence
tendered in this case, which sheds no light at all on the surrounding
circumstances. It consisted only of the subjective intentions of the parties:
Mr. Dan's subjective intention at the time of drafting and Dr. Sherman's
subjective intention to implement the agreement in a certain way.
[Emphasis
added]
[33]
In United
Brotherhood of Carpenters and Joiners of America, above, the issue was
whether the interpretation of certain provisions of a collective agreement by
an arbitrator and his consideration of extrinsic evidence in reaching that
interpretation were patently unreasonable. At paragraphs 42 and 43 of his
Reasons for the Court, Sopinka J. made the following comments:
42 The
general rule prohibiting the use of extrinsic evidence to interpret collective
agreements originates from the parol evidence rule in contract law. The
rule developed from the desire to have finality and certainty in contractual
obligations. It is generally presumed that when parties reduce an agreement to
writing they will have included all the necessary terms and circumstances and
that the intention of the parties is that the written contract is to be the
embodiment of all the terms. Furthermore, the rule is designed to prevent
the use of fabricated or unreliable extrinsic negotiations to attack formal
written contracts.
43 One
of the exceptions to the parol evidence rule has always been that where there
is ambiguity in the written contract itself, extrinsic evidence may be admitted
to clarify the meaning of the ambiguous term. (See Leggatt v. Brown (1899),
30 O.R. 225 (Div. Ct.).) However, determining when one falls within the
scope of this exception is far from easy, as even what can be said to constitute
a patent ambiguity is unclear. Some authorities have held that there must be
more than the arguability of different constructions of the agreement (Re
Milk & Bread Drivers, Local 647, and Silverwood Dairies Ltd. (1969), 20
L.A.C. 406), while others suggest that the appropriate test is a lack of
clear preponderance of meaning stemming from the words and structure of the
agreement (Re Int'l Ass'n of Machinists, Local 1740, and John Bertram
& Sons Co. (1967), 18 L.A.C. 362). An ambiguity is to be distinguished
from an inaccuracy, a novel result or a mere difficulty in construction.
There is also the issue of whether an ambiguity need be a patent one to warrant
the introduction of extrinsic evidence or whether a latent ambiguity involving
the uncertain application of otherwise clear words to the facts of the case is
sufficient. If a latent ambiguity is taken to be sufficient, the further
question arises as to whether extrinsic evidence may be introduced for the
purpose of determining the existence of the ambiguity. The difficulties faced
by courts of law in resolving these issues are magnified in the case of
arbitrators charged with the interpretation and application of a collective
agreement, as these individuals are often not only untrained in the law themselves
but are required to adjudicate upon arguments made by lay persons.
[Emphasis
added]
[34]
After
stating that extrinsic evidence is admissible where there is ambiguity in the
contract, Sopinka J. writes that determining whether a provision is ambiguous is
“far from easy”. Although Sopinka J. indicates that some cases have sown doubt
as to whether arguability of different constructions of a contract constitutes
ambiguity, the prevailing case law seems agreed that ambiguity exists when a
contractual provision or words thereof are capable of being understood in more
ways than one (see G.H.L. Fridman, The Law of Contract in Canada, 5th
ed. (Toronto, Thomson Carswell, 2006), p 446, Note 43). In that regard, G.H.L.
Fridman, summarizing the relevant case law, says at pp. 445-446:
… the court should not strain
to create an ambiguity that does not exist. It must be an ambiguity that exists
in the language as it stands, and not one that is itself created by the
evidence that is sought to be adduced.
However, it can be said with certainty that ambiguity in a
written document does not result simply because the document at issue poses
difficulties in interpretation.
[35]
More
recently, in Gilchrist v. Western Star Trucks Inc. [2000] 73 BCLR (3d)
102 at 108, Saunders J.A., writing for the British Columbia Court of Appeal,
summarized the relevant principles as follows:
The goal in
interpreting an agreement is to discover, objectively, the parties’ intentions
at the time the contract was made. The most significant tool is the language of
the agreement itself. The language must be read in the context of the
surrounding circumstances prevalent at the time of contracting. Only when
the words, viewed objectively, bear two or more reasonable interpretations may
the Court consider other matters such as the post-contracting conduct of the
parties.
[Emphasis
added]
[36]
A number
of propositions emerge from the above authorities. First, failing a finding of
ambiguity in the document under consideration, it is not open to the Court to
consider extrinsic evidence. Second, where extrinsic evidence may be
considered, that evidence must pertain to the “surrounding circumstances which
were prevalent at the time”. Third, even where there is ambiguity, evidence
only of a party’s subjective intention is not admissible.
[37]
With these
principles in mind, I now turn to the question of whether the Judge erred in
considering extrinsic evidence as an aid to interpreting the MOU. In my view,
the Judge made two errors of law in concluding as he did. First, he erred in
finding that section 2 of the MOU was ambiguous and, as a result, that he could
consider the extrinsic evidence. Second, I am of the view that, in any event,
the evidence tendered by GM was not admissible.
[38]
To answer
the question which was before him, the Judge was required to interpret the MOU.
As I indicated earlier, only section 2 thereof was amended. Sections 3, 4 and 5
remained the same. [Note that the underlined and struck out portions of the MOU
are the portions rectified by the 2005 rectification]:
APPENDIX
"H"
MEMORANDUM OF UNDERSTANDING
COVERING SPECIAL CANADIAN CONTINGENCY FUND
ENTERED into
this twenty-ninth day of September 1993
BETWEEN:
General
Motors of Canada Limited, referred to hereinafter as "Company"
AND:
National
Union CAW, and its Locals No. 222, 1973, 199, 303, 1163, 27, and 636, said
National Union CAW and said Local Unions being referred to jointly hereinafter
as "Union".
The Company
and the Union agree that:
1.
The Special Canadian Contingency Fund will be continued during the term of
the 1993 Master Agreement.
2.
Such The
Company's obligation to add to such Special Canadian Contingency Fund will equal an
accrual by the Company of be computed as two dollars ($2.00) per
overtime hour worked by all covered employees in excess of five percent (5%) of
straight time hours worked by such covered employees calculated on a twelve
month rolling average. For greater certainty, the Company and the Union
agree that the Company's obligation to add to the Special Canadian Contingency
Fund, as provided in this Section 2, accrues and becomes absolute as the
overtime hours described in the immediately preceding sentence are worked. The
Company and the Union agree that the amounts accrued to the Special Canadian
Contingency Fund are to be utilized exclusively for the benefit of members of
the Union and other appropriate Union purposes, the specific uses to be
determined as provided in Sections 3, 4 and 5, below.
3.
During the term of the 1993 Master Agreement, the Special Canadian Contingency
Fund will be utilized primarily in support of the negotiated Child Care
Programs, the Legal Services Plan and to finance the CSUB Plan, and then only
if needed. It may also be used to fund jointly agreed to initiatives as
determined by the President, National Union CAW and the Vice President and
General Director of Personnel. At any point in time, the Special Contingency
Fund Balance shall be equal to the cumulative accrual calculated in Section 2
above, less the cumulative utilization calculated in this Section 3. The
cumulative accrual and utilization shall include balances carried forward from
prior Agreements.
4.
The use of the SCC Fund for support of the CSUB Plan would be determined
solely by the amount of the Credit Unit Cancellation Base (CUCB) as determined
from time to time under the CSUB Plan for the purpose of determining the
cancellation rate of Credit Units on the payment of Regular Benefits under the
CSUB Plan.
In the event
that such CUCB amount otherwise would fall below the applicable amount that
would require an increased Credit Unit cancellation rate from 3.33 to 5.00
Units for Employees with one but less than five years Seniority, the Company
will make weekly contributions to the CSUB Fund from the balance in the SCC
Fund. Such additional contribution amount from the SCC Fund would be an amount
that, together with the amount of regular Company contributions to the CSUB
Fund that week, would be sufficient to pay all CSUB Benefits then due and
payable and still keep such CUCB from falling below the amount requiring the
increased cancellation rate described above. At any time the balance of the SCC
Fund is exhausted, the regular provisions of the CSUB Plan would apply.
5.
As of the end of the 1993 Master Agreement period, the parties would
negotiate the usage of any accrual then remaining in the Special Canadian
Contingency Fund.
Yours truly,
W.E. Tate
B. Hargrove
Vice
President and President National
General
Director of Personnel Union CAW
[39]
For ease
of reference, I reproduce, side by side, both versions of section 2 of the MOU:
|
Appendix “H” to the
1993 Collective Agreement : “MEMORANDUM OF UNDERSTANDING COVERING CANADIAN
CONTINGENCY FUND”, dated September 29, 1993.
2. Such Special
Canadian Contingency Fund will equal an accrual by the Company of two
dollars ($2.00) per overtime hour worked by all covered employees in
excess of five percent (5%) of straight time hours worked by such covered
employees calculated on a twelve month rolling average.
_________________________________
Appendix “H” to the
1993 Collective Agreement : “MEMORANDUM OF UNDERSTANDING COVERING CANADIAN
CONTINGENCY FUND”, dated October 22, 1996:
2. Such Special
Canadian Contingency Fund will equal an accrual by the Company of two dollars
and thirty-five cents ($2.35) per overtime hour worked by all
covered employees in excess of five percent (5%) of straight time hours
worked by such covered employees calculated on a twelve month rolling
average.
|
Appendix
“H” to the 1993 Collective Agreement : “MEMORANDUM OF UNDERSTANDING COVERING
CANADIAN CONTINGENCY FUND”,as modified on March 24, 2005.
2. The
Company's obligation to add to such Special Canadian Contingency Fund will be
computed as two dollars ($2.00) per overtime hour worked by all covered employees
in excess of five percent (5%) of straight time hours worked by such covered
employees calculated on a twelve month rolling average. For greater
certainty, the Company and the Union agree that the Company's obligation to
add to the Special Canadian Contingency Fund, as provided in this Section 2,
accrues and becomes absolute as the overtime hours described in the
immediately preceding sentence are worked. The Company and the Union agree
that the amounts accrued to the Special Canadian Contingency Fund are to be
utilized exclusively for the benefit of members of the Union and other
appropriate Union purposes, the specific uses to be determined as provided in
Sections 3, 4 and 5, below.
|
[40]
I begin by
setting out Malone J.A.’s interpretation of the unrectified provisions of the
MOU and of section 2 thereof in particular, which led him to the conclusion
that the parties had not created an absolute liability to pay on the part of GM
with respect to its 1995 taxation year. At paragraphs 19, 24 and 25 of his Reasons
in General Motors of Canada Ltd. (FCA), Malone J.A. wrote:
[19]
Key to the Tax Court Judge's decision was his determination that while GM
had a legal duty to accrue the Overtime Balance, there was no obligation in
1995 to pay out any part of that amount. The only obligation, according the Tax
Court Judge, was to make a bookkeeping entry and no more. The appellant
says that this amounts to a legal error in that the Tax Court Judge ignored the
meaning of the words 'accrual' and 'fund' used in article 2 as well as the
legal right of the CAW to enforce the provisions of the MOU through an
arbitration process. GM urges that the wording of article 2, properly
interpreted, establishes an absolute liability.
…
[24]
It is not disputed that in an accounting context, the Closing Balance in the
Contingency Fund was properly treated as an expense in GM's 1995 audited
financial statements and was recorded among "other current
liabilities" in those statements. However, it must be remembered that what
is recorded as an obligation for accounting purposes may not be considered an
absolute liability at law if a creditor with a legally enforceable claim cannot
be identified.
[25]
In my view, the requirement that General Motors accrue amounts in the
Contingency Fund did not create an absolute liability in 1995. General
Motors was not obliged to contribute $2 per relevant overtime hour worked to a
qualified trustee or to otherwise segregate or set aside any amount from its
ordinary working capital. All GM was required to do during that year was to
maintain a running account in which it accumulated amounts as specified by
article 2. It was only upon the occurrence of various contingent events, as
outlined in articles 3 and 4, that General Motors became legally obligated to
pay a sum of money. Similarly, article 5 did not create an absolute liability;
it simply provided that the parties would be obligated to negotiate the usage
of any accrual remaining in the Contingency Fund at the end of the collective
agreement.
[Emphasis
added]
[41]
Miller J.
could not reach a similar conclusion in respect of GM’s 1996 taxation year because
of his reading of the modified MOU in the light of the extrinsic evidence. In
his view, the nature of the obligation to be found in section 2 of the MOU was
an absolute liability on the part of GM to pay. The Judge’s reasoning appears
clearly from paragraphs 11, 12, 13, 17 and 18 of his Reasons:
[11] I
shall first review the words of the MOU. The words in section 2 speak in terms
of an "obligation to add to such SCCF" and "the company's
obligation to add to the SCCF as provided in this section 2 accrues and becomes
absolute". Section 2 goes on to stipulate that "the amounts accrued
to the SCCF are to be utilized exclusively ...". Notwithstanding Mr.
Meghji's earnest representations to the contrary, this wording is not
determinative as to the nature of the absolute obligation. The wording is
not written in terms of an absolute obligation to pay or expend the fund, or
even set aside funds: the absolute obligation, according to the words, is to
"add to the SCCF". That, according to the document, is the obligation
that is absolute. The parties cannot add any more or any less to the SCCF.
They must add to this notional fund a set, determinable amount. And I purposely
call it a notional fund, as it exists only by way of bookkeeping. There is no
segregated fund. There is no separate bank account. But there is a determinable
amount. According to the words in section 2, that determinable amount can only
be used for "Union members' benefit and other Union purposes as determined
in sections 3, 4 and 5".
[12] While
Mr. Meghji suggests I need look no further than section 2 to find an absolute
liability, I am not convinced, based on the words of section 2 alone, that the
absolute liability is an absolute liability to do anything more than calculate
an amount. Sections 3, 4 and 5 indicate what is to be done with the amount so
calculated. The Appellant argues that the obligation to add to the SCCF is to
be construed as an absolute liability for the amount; that is the expression
the Appellant used in argument - "absolute liability for the amount in
issue". Section 2 however does not state anywhere an absolute liability to
pay. Does "liability" implicitly mean liability to pay? Section 2
does oblige GM to do something and that obligation is "absolute"; the
obligation is to add to the SCCF as overtime hours are worked.
[13] The
words of section 2 stipulate that such added amount is to be utilized a certain
way, more particularly determined in sections 3, 4 and 5. Those following
sections make it clear the fund was to be spent on child care programs, legal
service and to finance the CSUB, "and then only if needed". I
interpret the words of section 2 as reflecting an intention to oblige GM to
calculate a certain amount for a fund, and that fund is agreed by GM and the
Union to be spent for the benefit of Union members and other Union purposes
specifically on:
(i)
programs, if needed;
(ii)
initiatives to be agreed upon between the parties; and
(iii) a
renegotiated basis at the end of the collective agreement period.
I conclude
the words are ambiguous as to whether the agreement to expend arises at the
time overtime hours are worked, or when the specific object of the expenditure
is identified.
[…]
[17] The
parties have put before me an Agreed Statement of Facts wherein both the
Appellant and the Respondent agree that the rulings of the Tax Court of Canada
and the Federal Court of Appeal were "inconsistent with the belief of the
parties that they had created an absolute liability". The parties also
submitted in a Joint Book of Documents, affidavits of Mr. Cameron and Mr. Gill
indicating in precise terms the nature of the absolute liability. Given such a
statement in the Agreed Statement of Facts and the joint submission of the
affidavits, and what I consider to be ambiguity in the language of section
2, I am prepared to give considerable weight to the affidavit evidence. And that
evidence is unambiguous in that the parties to the MOU intended to create, as
overtime hours were worked, an absolute liability to expend the fund.
[18]
Returning then to the intention I attempted to ascertain solely from a review
of section 2, I believe some significant clarification can now be given. Unlike
the finding in the previous decisions of this Court and the Federal Court of
Appeal of an obligation to calculate, combined with an agreement to agree, I
find the nature of the obligation that the parties intended to be absolute in
section 2 was an obligation to expend the fund: GM agreed in 1996 to expend
$7.7 million in the future. The words of Appendix H can easily be read
consistently with this stated intention of GM and CAW.
[Emphasis
added]
[42]
Before
considering the extrinsic evidence which GM sought to adduce, the Judge had to a
priori determine whether clause 2 was ambiguous in the legal sense. To do
so, in the words of Lang J.A. in MacDougall, above, he had to apply the
proper principles of contract interpretation, i.e. in this case, determine
whether there was ambiguity in the legal sense. In my respectful opinion, he
failed in that task and, as a result, he made an error of law. The Judge
clearly had no difficulty understanding the words of section 2. Rather his
difficulty was with the legal consequences flowing from his interpretation of
that section.
[43]
My reading
of the modified section 2 of the MOU leads me to the view that as it now reads,
it is not substantially different from its previous version. As Miller J.
himself recognizes at paragraph 11 of his decision, the absolute obligation
found at section 2 is “… to ‘add to the SCCF’. That, according to the document,
is the obligation that is absolute”. He goes on to say: “The parties cannot add
any more or any less to the SCCF. They must add to this notional fund a set,
determinable amount. And I purposely call it a notional fund, as it exists only
by way of bookkeeping”. In other words, according to Miller J., the obligation
created by section 2 is the same which this Court found in respect of GM’s 1995
taxation year (see paragraph 25 of Malone J.A.’s Reasons in General Motors
of Canada Ltd. (FCA)). Of significance is
paragraph 12 of Miller J.’s Reasons, where he states in no uncertain terms:
12. While Mr.
Meghji [counsel for GM in General Motors of Canada Ltd. (FCA)] suggests
I need look no further than section 2 to find an absolute liability, I am
not convinced, based on the words of section 2 alone, that the absolute
liability is an absolute liability to do anything more than calculate an amount.
Sections 3, 4 and 5 indicate what is to be done with the amount so calculated.
[Emphasis
added]
[44]
The fact
that the amount accrued or added to the SCCF as per section 2 of the MOU had to
be used solely for the purposes described in sections 3 to 5, sections which
were not modified in 2005, was clearly considered and dealt with by this Court
in respect of GM’s 1995 taxation year.
[45]
Notwithstanding
his finding concerning the nature of the absolute liability created by the
words of section 2 of the MOU, Miller J. concluded that the words thereof were
ambiguous “as to whether the agreement to expend arises at the time overtime
hours are worked, or when the specific object of the expenditure is identified”
(paragraph 13 of his Reasons). Having concluded without difficulty that GM’s
obligation was to “add to the SCCF” and “to calculate a certain amount for a
fund”, the Judge could not, in my view, conclude that there was ambiguity in
the wording of section 2.
[46]
In other
words, the words of section 2 were not capable of being understood in more senses
than one. In my respectful view, the Judge fell in the trap which Fridman refers
to in The Law of Contract in Canada, above, when he says at page 446, that
“the ambiguity found by the court must not be one that results from the
evidence which the parties wish to present”. Although GM and the CAW say, by
way of the affidavits of Messrs. Cameron and Gill, that their purpose in
creating the SCCF was to create an absolute liability to pay on the part of GM
as overtime hours were worked, that intention did not make its way into the MOU,
i.e. the words of section 2 do not reveal the intention which both GM and the CAW
say was theirs.
[47]
In effect,
section 2, as modified, simply creates, as its former version did, an
obligation to add the overtime worked to the SCCF. Sections 3 and 4 provide that
the amount has to be paid for certain purposes, conditionally to the occurrence
of certain events, and section 5 obliges the parties to negotiate the use of
any accrual remaining in the SCCF. In my view, there is nothing ambiguous in
the words of section 2 of the MOU as modified on March 24, 2005. I therefore
conclude that the Judge was not entitled to consider the extrinsic evidence
adduced by GM.
[48]
Consequently,
Malone J.A.’s rationale for concluding that the former version of section 2 did
not give rise in 1995 to an absolute liability to pay on the part of GM is
entirely apposite in respect of the modified MOU. Thus, since GM’s obligation
under the MOU is simply to add to the SCCF amounts as overtime work is
performed and that it did not have, in 1996, an obligation to pay out any part
of that amount, such payment being conditional to the occurrence of the events
specified in sections 3 and 4 of the MOU, I conclude that GM’s obligation is
contingent and therefore the unexpended portion of the SCCF is not deductible
pursuant to paragraph 18(1)(e) of the Act.
[49]
Before
concluding, I wish to briefly address what, in my view, constitutes a second
error of law on the part of the Judge. As I indicated earlier in these Reasons,
it is my opinion that the Judge could not, in any event, consider the extrinsic
evidence placed before him by GM. That evidence, in the form of affidavits of
Messrs. Cameron and Gill, clearly falls within the type of evidence which
Iacobucci in Eli Lilly, above, held to be inadmissible. The affidavits
simply purport to set out the subjective intentions of both GM and the CAW. They
shed no light on the “surrounding circumstances”. In my view, extrinsic
evidence, when admissible, must be restricted to facts relevant at the time of
execution of the document, or prior thereto and, possibly in some cases, to
facts occurring after the execution of the document. Clearly, the proof
tendered by GM does not fall within that category. Because the Judge did not
consider the question of whether the evidence sought to be adduced by GM was
admissible, he failed to characterize the nature of that evidence.
DISPOSITION
[50]
I would therefore
allow the appeal with costs, set aside the Tax Court decision and refer the
matter back to the Minister of National Revenue for reconsideration and
reassessment on the basis that GM is not entitled to deduct the unexpended
portion of the SCCF of approximately $7,741,002.
“M.
Nadon”
“I
agree.
Robert
Décary J.A.”
“I
agree.
Johanne
Trudel J.A.”
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